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2002 North American Wrap Up; 2003-2006 Global Outlook (Feb 2003)
February 12, 2003 |Estimated reading time: 15 minutes
2002 North American Wrap Up; 2003–2006 Global Outlook by Walt Custer February 1, 2003
Based upon IPC data for January–November 2002, it appears that total $ shipments of rigid and flexible circuits in North America declined about 19% in 2002 vs. 2001 (Chart 1). However, flex circuits ($1 billion, 0% growth) fared much better than rigid PCBs ($5.3 billion, down 22%). In total, North American rigid and flex PWB production totaled $6.3 billion in 2002, down from $7.8 billion in 2001 and $10.9 billion in 2000. Ouch!
Flat U.S. electronic equipment production (Chart 2) remains the main impediment to a domestic PCB recovery. Comparing Chart 3 (Department of Commerce “Factory Orders” data) to Chart 4 (total semiconductor shipments to North America, i.e., chips consumed in producing electronic equipment), the historical patterns are the same. No signs of any pickup yet!
Looking at the monthly order and shipment patterns rigid PCB order (green bars in Chart 4) are pretty flat. Although the November 2002 orders and shipments showed some year/year growth, this was versus a very poor November 2001 as a reference. A “30,000-foot view” suggests that domestic rigid PCB production has been little changed since mid-2001.
Flexible circuits (Chart 5) present a more optimistic picture. Orders are now increasing, up 29% in November vs. June 2002.
Comparing 3-month electronic equipment order growth rates by sector (Chart 6), we see that all end markets except communication/Internet equipment are now finally above 2001 levels. Not surprisingly, military electronics (major component of “search & navigation” equipment) is expanding the fastest (up 20% for Sept-Nov 2002 vs. Sept-Nov 2001). However, these 3/12 growth rates can be misleading as the comparison is versus the “September 11” time period of 2001.
Chart 7 gives 3/12 (3-month) and 12/12 (annual) growth rates for the key domestic electronic segments. The 3/12 is the leading indicator. This chart says, for example, that total electronic equipment orders (3/12 = 105.9) are up 5.9% in Sept-Nov 2002 vs. Sept-Nov 2001. Similarly, the 12/12 = 92.6 meaning that the annualized growth rate - sum (Dec 01 to Nov 02) is 7.4% below sum (Dec 00 to Nov 01).
To assess our 2003 recovery, we must watch not only the segment growth rates (Chart 7) but also the actual order and shipment values. We should not be mislead by an apparent recovery when the comparison is to the September 11 timeframe.
With these cautions and barring a major Mideast outbreak, 2003 to 2006 should be a period of global expansion. Chart 8 provides Henderson Ventures (Ed Henderson’s & Dr. Hayao Nakahara’s) estimate of electronic equipment growth by geographical area. Chart 9 is Electronic Outlook’s (Ed Henderson & Ralph Anavy’s) estimate of global electronic equipment production by market segment.
Identifying and positioning your company in the highest growth end markets is crucial to survival.
General Business Conditions
US Manufacturing activity jumped in December to its highest level since June, but it was unclear if that momentum could be sustained. The Institute for Supply Management’s index of business activity rose to 54.7 from 49.2 in November. The December improvement was attributed to a surge in new orders, with that subindex soaring to 63.3 from 49.9 in November.
The Electronics Buyers’ Index (EBI) improved slightly in December, after reaching a low in November not seen since late in 2001. The movement was offset, however, by a decline in the EBI Leading Index, which fell 5.4% from November. Procurement professionals polled for the December EBI cited several macroeconomic and political factors as causes for concern, including a dearth of corporate spending, signs of slowing business in some Asian countries, the continued possibility of war with Iraq, troubling revelations regarding the resumption of North Korea’s nuclear weapons program, and an oil strike in Venezuela that is causing fuel prices to rise. “Month to month, quarter to quarter, we continue to see a lack of capital spending, which continues to hinder any kind of recovery in the electronics industry,” said a buyer at one major contract manufacturer.
For 2003, the global EMS industry is projected to grow about 7% to $98.4 billion from $92 billion in 2002, according to Technology Forecasters. Revenue is expected to climb by about 18% year-over-year to $116.2 billion in 2004; then increasing to $170.1 billion in 2006. Original design manufacturers will grow faster, but that segment is starting from a smaller sales base. For 2003 revenue will grow to $41.8 billion, up about 15% from $36.4 billion in 2002. By 2006, the ODM market is expected to nearly double to $72.4 billion.
PCB makers could find profits in the backlight module industry as LCD TV monitors expand in size. According to a Taiwanese PCB maker, a NT$60 million in investment could yield more than NT$200 million in annual sales - highly attractive in comparison to the return on PCB sales.
Electronic Equipment
Computers
Strong public sector spending and continued improvement in the consumer market support IDC’s forecast for just over 1% growth in worldwide PC shipments in 2002 and more than 8% growth in 2003.
Mobile Communications
China produced 110 million mobile phones in 2002, of which 45 million were for export. Foreign vendors still dominate China’s mobile phone market, taking the top three positions. However, local players such as TCL, Kejian and Ningbo Bird are trailing closely. According to China’s Ministry of Information Industry, local mobile phone companies supplied 20% of mobile phones sold in China in 2002, up 8 percentage points in share from 2001. More than 200 million people subscribed to mobile phone service in China in 2002, up by 55 million users from the end of 2001.
Telecommunications
China’s telecommunications equipment makers are aggressively competing for a bigger slice of the international market at the same time as their global rivals are eyeing the mainland. Singapore Telecommunications COO Lim Toon recalled China’s Huawei Technologies management’s words in a sales pitch: “Whatever [products] Cisco Systems have, we have the same, and we have them cheaper.”
PCB Fabrication
AT&S will start production in its Shanghai, China plant in spring 2003, said CEO Willi Doerflinger. The 130 million euro plant has 250 employees and is projected to generate sales of 100 million euro and a profit for the 2004/05 fiscal year ending March 31, 2005.
AT&S offered to take over all of the PCB-related assets of AIK Electronics Austria, which recently became insolvent. This PCB fab was the supplier for Philip’s video player factory and was sold to German engineering group AIK in 1999.
CMK plans to consolidate domestic and overseas production of general-purpose PWBs by the end of 2003. The move (reducing costs by 300 million yen), which targets 1-sided paper phenolic “consumer” PWBs, was driven by the growing strength of Chinese manufacturers and the resulting 15% drop in PWB prices. CMK will halve 1-sided PWB output in Niigata Prefecture to 200,000 sq. meters a month, and halt production entirely at its Singapore JV with Sumitomo Bakelite. Niigata and Singapore output will be transferred to CMK factories in Malaysia and Indonesia.
CMK formed a JV with Taiwan-based Bao-Cheng Enterprise. The new company will produce and sell PCBs. The JV includes the PCB plant of Bao-Cheng in Guangdong Province. Its products will be used in mobile phones, computers, electric equipment, and automobiles. Total sales are expected to be US$100 million in 2003.
DDi transferred its common stock listing from The NASDAQ National Market to The NASDAQ Small Cap Market. It will continue to trade under the ticker symbol DDIC.
Merix is cutting 50 jobs and shutting its Forest Grove satellite plant that handles its finishing, testing and shipping operations. The company has an empty 90,000-square-foot plant in Wood Village, a $90 million project begun during boom times. This completed factory is equipped with most of the necessary manufacturing devices, but the company hasn’t seen enough demand to staff it.
Multek closed its PCB fabs in Irvine, California and Kumla, Sweden. Irvine operations are relocating to Roseville, Minnesota and Guadalajara, Mexico. Multek’s European customers will continue to obtain quick-turn and prototype services from Boeblingen, Germany and advanced production capabilities from Doumen, China.
NOK will build a new factory in Ibaraki Prefecture to produce multilayered flexible printed circuit boards used in cellular phones and other electronic devices. The company plans to invest some 6.8 billion yen (US$57 million), including 2 billion yen in production equipment, to build the 15,000-sq.-meter plant. Operation is scheduled to start up in September. NOK projects sales of the boards in the fiscal year ending March 2003 will grow 18% on the year to around 97.7 billion yen.
TTM Technologies acquired Honeywell’s Advanced Circuits operation (ACI). The total cost of the acquisition is approximately $2 million, including fees and expenses. “Advanced Circuits provides an excellent complement to our existing operations and is a tremendous fit with our successful time and technology strategy,” said Kent Alder, CEO of TTM Technologies. “In addition to its high technology capacity, ACI will give us access to additional blue-chip clients, creating opportunities to cross sell our quick-turn capabilities.” ACI currently employs 700 workers at its only facility in Chippewa Falls, Wisconsin, and has fourth-quarter annualized revenues of an estimated $80 to $90 million.
WBL’s 65.8 % owned subsidiary Multi-Fine Electronix will pursue a public listing in the US as part of its plan to enhance shareholder value. Multi-Fine makes flexible printed circuits with production plants in the US and Suzhou, China.
Materials
Hanwha Chemical, South Korea, plans to boost its turnover from Won 700 billion/year to Won 1 trillion/year by 2005 by entering the market for electronics materials. In Nov 2002 it began manufacturing flexible copper-clad laminates and flexible PCBs. The company will invest Won 13 billion in a 150,000 sq meters/month FCCL plant scheduled to open in 2H’03. This plant will be expanded to 500,000 sq meters/month by 2005.
Advanced Glassfiber Yarns filed for Chapter 11 bankruptcy in late 2002 to restructure more than $330 million in debt. This 4-year-old JV between Groupe Porcher Industries of France and Owens Corning once employed 1,500 people globally. It now employs about 855.
Atotech was appointed the exclusive Asia distributor for Lackwerke Peters’ PCB-related inks and of auxiliary products.
India initiated an anti-dumping probe on all imports of copper clad laminates from China, S Korea, Taiwan, Singapore, Philippines, Hong Kong and Thailand. Gujarat Perstorp Electronics filed the petition.
Electronic Manufacturing Services
Advantage Electronic Manufacturing, a startup, will open a 6,000 SF facility in Waco, TX to “make” circuit boards. Owner Ron Slezak said he hopes to place seven “highly skilled” people on his payroll by the end of 2003, while hiring a half-dozen to as many as 30 semiskilled workers, depending on his workload.
AlphaCell Wireless and Flextronics announced a manufacturing agreement where Flextronics provides manufacturing services and complete after-sale service and support for AlphaCell.
Delphi will invest more than $243 million during the next three years in electronics product lines within its Delco Electronics subsidiary in Kokomo, Ind. Delphi is investing $38.7 million in its Recognition™ Passive Occupant Detection Systems and $110.5 million in next generation engine control modules. The company is allocating $80.5 million to its integrated circuits fabrication facility and pressure sensors. In addition, Delphi will spend $14 million on engineering equipment.
Elcoteq Network acquired IBM’s 70% ownership in Chinese EMS companies Shenzhen GKI Electronics and Beijing GKI Electronics. Computer systems developer China Great Wall Computer Shenzhen will remain a JV partner in both companies. Elcoteq will also establish a presence in Beijing’s Xingwang industrial park, where GKI’s new Beijing plant is located.
Elcoteq Network will reopen its second plant in Tallinn, Estonia. This plant was originally completed in early 2001 to manufacture communications network equipment products. As the market slowdown became clearly evident, Elcoteq decided in the fall of 2001 to close the Tallinn 2 plant for the time being and move its production to the other Elcoteq Tallinn plant, which mainly concentrated on manufacturing terminal products. Separately, Elcoteq Network sold its industrial site in Poland.
Flextronics opened its Technology Center in Guadalajara, Mexico to provide product analysis and test characterization services. Additional offerings include qualification of new processes, technologies, and materials; product and process qualification during early engineering verification and design validation; characterization of product during new product introductions; and centralized development of in-circuit test programs and X-ray laminography programs.
Flextronics will reposition itself from assembly to development, logistics and, later, relogistics in Hungary. It has four factories and a development center there and employs 10,000 workers. Flextronics International projected a total 2002 turnover of $13 billion with 42% generated by factories in Europe.
Flextronics plans to double its Asian design staff, particularly in China, by 1Q’03. It is also looking to acquire Asian companies that design electronics as part of this expansion plan.
Flextronics International will increase investment and acquire more companies in Asia. Asia has overtaken the Americas as the company’s second- largest market, behind Europe, contributing 36% of sales in CY 3Q’02. It expects the region to become its biggest market within five years. More than half of Flextronic’s 95,000 workers are now in Asia.
Flextronics, Pandrup, Denmark will assemble at least 50,000 DVD players for Kiss Technology from February 2003.
Hewlett-Packard will set up a PC assembly facility in Saudi Arabia with a capacity of 60,000 units a year.
Plexus will close its San Diego manufacturing facility. In addition, it is taking further restructuring action throughout its global operations, including the consolidation of buildings in Seattle, Washington. Plexus intends to reduce its global facilities by approximately 210,000 square feet. Approximately 400 employees will be affected by the restructuring.
Rockwell Collins is relocating some assembly operations from Cedar Rapids to Coralville, Iowa.
Sanmina-SCI is shutting down the former JPM cable-assembly plant in Lewisburg, PA it bought in bankruptcy in May 2002. After Sanmina acquired JPM, it closed its Beaver Springs, PA plant and consolidated manufacturing operations in Lewisburg.
Sanmina-SCI stopped operating its Heerenveen, Netherlands assembly plant in December 2002. Heerenveen orders will be fulfilled in Hungary due to lower costs.
Sanmina-SCI acquired Elscint’s manufacturing, assembly, engineering and integration operations in Israel. This factory manufactures high-end medical systems and other industrial products. Principle customers include GE Medical Systems and Philips Medical Systems.
Sanmina-SCI will make computers for Hewlett-Packard, Hungary. Its Tatabanya plant can make 50,000 PCs a month and can expand to cope with increased market demand, Sanmina-SCI VP David Snape said.
Sanmina-SCI signed a 3-year supply agreement with IBM worth over $3.6 billion. IBM will outsource manufacturing of a significant portion of its low and midrange servers and workstations and custom notebook configurations for the Americas, Europe the Middle East and Africa. Sanmina-SCI will acquire IBM’s manufacturing operations that support these products in Mexico and Scotland. In addition, Sanmina-SCI will distribute and fulfill customer orders for computing options for IBM. The agreement includes the transfer of approximately 650 IBM employees in Greenock, Scotland, 400 employees in Guadalajara, Mexico and 10 employees in the Raleigh, NC. All transferring IBM employees will be offered positions with Sanmina-SCI.
Solectron named Michael Cannon as president and CEO, succeeding Koichi Nishimura. Cannon, 50, was also elected to the Solectron board. He joins Solectron from Maxtor where he was president and CEO.
Solectron and IPWireless formed an alliance. Solectron will offer PCB assembly, new product introduction, complete product assembly and fulfillment services from its center in Dunfermline, UK, for IPWireless’ desktop modems and PCMCIA broadband modem cards.
Solectron will provide new product introduction services and product assembly for PerComm wireless messaging devices.
Solectron shut down its manufacturing plant in Monterrey, Mexico, shifting production to its Guadalajara facility. “A lot of commodity products have migrated to the Chinese market,” said Alejandro Gomez, Solectron’s Senior VP and president of the Latin American region. “We’re replacing that with more complex products and more systems build products.” Solectron currently has 6,300 employees in Mexico.
Solectron will acquire IBM’s Global Asset Recovery operations in Raleigh, N.C.
Solectron sold its production unit in Pont-de-Buis, northwestern France, to French electronics company Novatech Technologie. The buyer will keep the site’s 300 jobs.
Semiconductors
Global semiconductor sales reached $12.68 billion in November 2002, a 1.3% sequential increase from the $12.51 billion in October 2002. November sales were up 19.6% from November 2001. “The November sales of the global chip industry underscores the healthy recovery that has been building momentum through out this year,” stated SIA President George Scalise. “The wireless sector continues to be the strongest single market.”
The worldwide semiconductor industry returned to positive growth in 2002, with revenue totaling $155.4 billion, a 1.4% increase from 2001, according to Dataquest.
Preliminary Top 10 Worldwide Semiconductor Vendors by Revenue Estimates
(Millions of U.S. Dollars)
Company 2002 Revenue 2002 Market Share (%) 2001Revenue 2001Share (%)
Market 2002-2001 Growth (%)
Intel 24,150 15.5 24,927 16.3 -3.1 Samsung 8,165 5.3 6,303 4.1 29.5 Toshiba 6,529 4.2 6,783 4.4 -3.7 STMicroelectronics 6,305 4.1 6,360 4.2 -0.9 Texas Instruments 6,200 4.0 6,060 4.0 2.3 NEC Electronics 5,681 3.7 5,389 3.5 5.4 Infineon Technologies 5,355 3.4 4,386 2.9 22.1 Motorola 4,800 3.1 4,828 3.2 -0.6 Philips Semiconductor 4,355 2.8 4,402 2.9 -1.1 Hitachi 4,123 2.7 4,724 3.1 -12.7 Others 79,737 51.3 79,080 51.6 0.8 Total Market 155,400 100.0 153,242 100.0 1.4
The North American-based manufacturers of semiconductor equipment posted a book-to-bill ratio of 0.79 in November. “The current booking levels, down from highs earlier in the year (2002) , reflect the uncertainty facing the semiconductor industry as the New Year approaches, although the overall mood in the industry is that conditions will improve in 2003,” said Stanley Myers, president and CEO of SEMI.
Chip-making equipment sales fell to about $18.9 billion in 2002 from $28 billion in 2001 according to SEMI. In 2003 sales will rise 15% to $21.8 billion. “The outlook for a $3 billion market expansion for equipment in 2003 fits the prevailing sentiment that capital expenditures will resume
in the latter part of the year as inventories are burned off and manufacturing capacity utilization increases,” SEMI President Stanley Myers said.
Worldwide DRAM revenue reached $16.2 billion in 2002, a 36.7% increase from 2001, according to Dataquest.
Preliminary Top 10 Worldwide DRAM Vendors by Revenue Estimates
(Millions of U.S. Dollars)
Company 2002 Revenue 2002 Market Share (%) 2001Revenue 2001Market Share (%) 2002-2001Growth Samsung Electronics 4,992 30.8 3,200 27.0 56.0 Micron Technology 2,791 17.2 2,260 19.1 23.5 Hynix Semiconductor 2,104 13.0 1,716 14.5 22.6 Infineon Technologies 1,981 12.2 1,154 9.7 71.7 Elpida Memory 1,032 6.4 1,011 8.5 2.1 Nanya Technology 785 4.8 273 2.3 187.7 Others 2,526 15.6 2,242 18.9 12.7 Total Market 16,212 100.0 11,856 100.0 36.7 Notes: Micron Technology’s revenue includes Toshiba’s commodity DRAM revenues for the first quarter of 2002. Source: Gartner Dataquest
Other
The optical components market will finally grow again in 2003, with a 30% year-over-year increase in dollar volume, according to Strategies Unlimited. Even with 30% growth, component vendors’ revenues in 2003 are projected at $2.1 billion, far below the $9.1 billion peak seen in 2000. “The steep drop off of business in the past two years has led to an industry shakeout. Established companies such as Agere Systems and numerous startups have already chosen to (or been forced to) leave the business. With a smaller number of players in the market, those who remain have a better chance of long-term survival,” according to the company.
Bel Fuse acquired the assets of the passive components business from Insilco Technologies for approximately $35 million in cash and the assumption of certain liabilities. Included are the assets of Insilco Technologies subsidiaries Stewart Connector Systems, InNet Technologies, and Signal Transformer.
Vishay Intertechnology acquired BCcomponents Holdings, a manufacturer of passive components with operations in Europe, India and the Far East. The product lines of BCcomponents include linear and non-linear resistors; ceramic, film and aluminum electrolytic capacitors; and switches and trimming potentiometers. BCcomponents had annual sales in 2001 of approximately $320 million.
Yageo delayed construction of its second MLCC plant in Suzhou, Jiangsu Province (China) until 2H’03 or later, said company president Jerry Lee. It will then reevaluate the construction timeline according to the market recovery.
Ferro, the world’s largest MLCC powder materials supplier, said in 2003 it will be able to provide a pure silver powder that can replace palladium and reduce two-thirds of costs for NPO products.
Shipley signed a JV agreement with Therma-Wave, Fremont, California. The companies plan to develop scatterometric methods to better measure 130nm photoresist features for poly silicon gate and shallow trench applications.
KEMET plans to begin manufacturing operations in the People’s Republic of China during CY2003.
Walt CusterCuster Consulting GroupPhone: 707 785-1777FAX: 707 785-1988www.custerconsulting.com/
E-mail: walt@custerconsulting.com
This article was originally published in CircuiTree magazine and is reprinted here with permission.